Reforming the Business Energy Efficiency Tax Landscape: Response to the Consultation

The Government has issued its response to the consultation on reforming the business energy efficiency tax landscape in the summer of 2015.

The key decisions that the government have taken are as follows:

Close the CRC following the 2018-19 compliance year, with no purchase of allowances required to cover emissions for energy supplied from April 2019.

Increase main rates of CCL from April 2019, to recoup revenue lost from abolishing the CRC in a fiscally-neutral reform, and encourage energy efficiency amongst CCL- paying businesses.

Increase the CCL discount available to CCA participants from April 2019 to ensure they pay no more than an RPI level increase.

Rebalance CCL rates for different fuel types to reflect the fuel mix used in electricity generation and move to an electricity/gas ratio of 2.5:1 from April 2019. In the longer term the government intends to rebalance further, reaching a ratio of 1:1 by 2025.

Consult later in 2016 on a simplified energy and carbon reporting framework for introduction by April 2019.

Retain existing eligibility criteria for CCA schemes until at least 2023, with a target review, to include a review of the buy-out price for periods 3 and 4, starting in 2016.

Closure of the CRC Scheme

This was welcomed by business, understandably as the reporting was another administrative burden and often duplicated existing reporting structures.

However this does mean that there are still a further four (4) years of reporting, 2015/2016, 2016/2017, 2017/2018 and 2018/2019 to complete Phase 2 of the CRC.

With the cost of allowances set to rise, this will still prove to be both a financial and administrative burden on industry until its closure.

CRC Scheme Year

Forecast Sale Price

Compliance Sale Price

2014/15

£15.60

£16.40

2015/16

£15.60

£16.90

2016/17

£16.10

£17.20

2017/18

£16.60

£17.70

2018/19

£17.20

£18.30

Increase in Main Rates of CCL/Increase CCL Discounts for Energy Intensive Businesses

To recoup the revenue lost from the closure of the CRC scheme, the government is proposing to increase the main rates of CCL:

Taxable Commodity

Rate from 01/04/2016

Rate from 01/04/2017

Rate from 01/04/2018

Rate from 01/04/2019

Electricity (£ per kWh)

0.00559

0.00568

0.00583

0.00847

Natural gas (£ per kWh)

0.00195

0.00198

0.00203

0.00339

LPG (£ per kg)

0.01251

0.01272

0.01304

0.02175

Any other taxable commodity (£ per kg)

0.01526

0.01551

0.01591

0.02653

Whilst the government states that this will be a fiscally neutral reform and aims to protect the smallest businesses that do not pay CCL; it is still a significant increase (45%) in 2019. Also those businesses that were never captured by the CRC will see no benefit, just an increase in energy taxation.

It should be noted that energy intensive businesses will remain protected from the impacts of the increased CCL rates by a matched increase in their Climate Change Agreement (CCA) exemptions.

Taxable Commodity

Rate from 01/04/2016

Rate from 01/04/2017

Rate from 01/04/2018

Rate from 01/04/2019

Electricity

10%

10%

10%

7%

Natural gas

35%

35%

35%

22%

LPG

35%

35%

35%

22%

Any other taxable commodity

35%

35%

35%

22%

Rebalance CCL Fuel Rates

From April 2019, this will have increased the hotels’ CCL liability on gas by approximately 74% from 2016 levels.

Taxable Commodity

Quantity Used (kWh)

Rate in April 2019

CCL Payment Due

Natural Gas

262,205

0.00339

£888.87

Simplified Energy/Carbon Reporting Structure

The government intends to consult on this later in 2016 for introduction by April 2019. Although the CRC will have been abolished, we would expect that the reporting structure used by CRC will become the basis for the new structure, possibly aligned with the Energy Savings Opportunity Scheme (ESOS) methodology as both will have been operating consistently and businesses will be familiar with them.

If this is the case, we would suggest that businesses that have not already looked at ISO 50001 certification, should consider doing so, as this will significantly reduce the administrative burden on reporting.

Eligibility Criteria for CCA Schemes

Whilst the government has committed to ensuring that the most energy intensive businesses remain protected from the impacts of the increases in CCL rates, this is only for those that are part of a CCA scheme. Those businesses that are part of a CCA will see their exemption rates increase to offset the change in the main rates of CCL.

The government has also said they will not seek to alter the eligibility criteria for existing CCA schemes until at least 2023. However the existing criteria still leaves a large swathe of businesses that are unable to participate and will consequently see a large increase in their energy utility costs.